Colt: The Continued Soap Opera.

[DPris]

Fuff,
You're a little off on the Browning thing.

He SOLD designs to primarily Winchester & Colt for several years, which involved no royalties at all.
Later on, when he decided he'd reached the point where royalties were preferable, he tried to negotiate a royalty deal with Winchester, whose president refused, leading Browning to sever his relationship with that company.

Winchester ended up owning several Browning designs outright, many of which were bought solely to keep them from being sold to competitors, and were never put into production at all.

He was able to work out a royalty basis with FN for European sales.
And from then on he did business on a royalty basis.
Denis

 

[wojownik]

Here are the offers for Colt from Sciens vs. bondholders

OK, so I posted before that Sciens Capital intended to bail out Colt by buying it back itself as a stalking horse.

Sciens is proposing to have a Sciens affiliate (possibly the very same one that owns the building that Colt currently uses) buy Colt not laying out any cash, but by assuming part if its obligations - including up to $105 million in outstanding secured debt, plus up to $20 million in new DIP financing. The secured debt and DIP financing are from the same two secured creditors. Notably, the bondholder debt dissappears.

So, the Sciens stalking horse bid would amount to 0 cash up front, and tosses away the $250 million in bondholder debt. Colt basically stays the same, secured creditors give up a little, bondholders are totally screwed.

The bondholders have counter proposed that they take ownership of Colt, in return for giving up half of the bond debt.

The Sciens strategy is very unusual. Usually the equity holder would lose their position as well in a situation like this. It's a very clever scheme. Perhaps too clever. I'm wondering if the bankrupty judge will buy off on this, or will see the scheme for what it is - Sciens retains control and equity and finds a convenient way to duck out of its bondholder obligations. They are playing a very nasty game of brinksmanship.

This also opens the door for another company to up the ante with a higher and better offer - assume the debt, drop in some cash, add some better value added (management, synergies with other divisions, etc...).

But, Sciens is still holding out the "nuclear option" as a threat. Move from Chapter 11 reorg if they don't get their way, and go to Chapter 7 to totally dissolve the company. Sciens has made allusions in this direction, likely to rattle the bondholders. The Pony could make through these proceedings, but I'm starting to get the feeling that Sciens are the kind of b@stards that would blow up the whole venture.

Part of me wishes I was not following this so closely - just that my own Colts seem somehow ... tarnished now.

 

[Aragon]

OK, so I posted before that Sciens Capital intended to bail out Colt by buying it back itself as a stalking horse.

Sciens is proposing to have a Sciens affiliate (possibly the very same one that owns the building that Colt currently uses) buy Colt not laying out any cash, but by assuming part if its obligations - including up to $105 million in outstanding secured debt, plus up to $20 million in new DIP financing. The secured debt and DIP financing are from the same two secured creditors. Notably, the bondholder debt dissappears.

So, the Sciens stalking horse bid would amount to 0 cash up front, and tosses away the $250 million in bondholder debt. Colt basically stays the same, secured creditors give up a little, bondholders are totally screwed.

The bondholders have counter proposed that they take ownership of Colt, in return for giving up half of the bond debt.

The Sciens strategy is very unusual. Usually the equity holder would lose their position as well in a situation like this. It's a very clever scheme. Perhaps too clever. I'm wondering if the bankrupty judge will buy off on this, or will see the scheme for what it is - Sciens retains control and equity and finds a convenient way to duck out of its bondholder obligations. They are playing a very nasty game of brinksmanship.

This also opens the door for another company to up the ante with a higher and better offer - assume the debt, drop in some cash, add some better value added (management, synergies with other divisions, etc...).

But, Sciens is still holding out the "nuclear option" as a threat. Move from Chapter 11 reorg if they don't get their way, and go to Chapter 7 to totally dissolve the company. Sciens has made allusions in this direction, likely to rattle the bondholders. The Pony could make through these proceedings, but I'm starting to get the feeling that Sciens are the kind of b@stards that would blow up the whole venture.

Part of me wishes I was not following this so closely - just that my own Colts seem somehow ... tarnished now.

What does Colt's balance sheet look like were it to be wiped clean of responsibility for the bonds? Would Colt's total debt be in the neighborhood of $105M with very little cash on hand?

I think what makes Sciens' schema plausible is that no white knight is on the horizon as far as I can see. I really cannot see an established company willing to pay more than what Sciens would end-up paying if what you outlined actually happens.

Still, I think the bond-holders are going to have their day in court. Given the amount of $$$ that have been siphoned off of Colt in the past 10-15 years, I could see something unexpected happening -- in the bondholders' favor.

 

[JSH1]

If this is true:

"The West Hartford, Connecticut-based firearms maker listed assets of as much as $500 million and debt of as much as $500 million in a Chapter 11 filing late Sunday in bankruptcy court in Wilmington, Delaware. Wilmington Trust Company is listed as the biggest unsecured creditor with a $261 million claim." (From Bloomberg Business)

The bondholders have no reason to take Sciens' crappy offer. If Colt has assets about equal to their debt, the bondholders will push for liquidation rather than give Sciens back the company for pennies on the dollar.

I can see why Sciens likes their offered deal: We keep the company, take no loss, and the bondholders get completely screwed. I see no reason for the Bankruptcy judge or bondholders to go for that deal.

 

[DPris]

I just want it over!
Denis

 

[JRH6856]

I'm starting to get the feeling that Sciens are the kind of b@stards that would blow up the whole venture.

I'm getting the feeling that Sciens are the kind of "bastards" that keep score strictly in $$$ and will go which ever way costs them the least or garners them the most. Blowing up the venture purely out of spite will not do that but there still might be $$ reasons that make that an option.

 

[Thermactor]

OK, so I posted before that Sciens Capital intended to bail out Colt by buying it back itself as a stalking horse.

Sciens is proposing to have a Sciens affiliate (possibly the very same one that owns the building that Colt currently uses) buy Colt not laying out any cash, but by assuming part if its obligations - including up to $105 million in outstanding secured debt, plus up to $20 million in new DIP financing. The secured debt and DIP financing are from the same two secured creditors. Notably, the bondholder debt dissappears.

So, the Sciens stalking horse bid would amount to 0 cash up front, and tosses away the $250 million in bondholder debt. Colt basically stays the same, secured creditors give up a little, bondholders are totally screwed.

The bondholders have counter proposed that they take ownership of Colt, in return for giving up half of the bond debt.

The Sciens strategy is very unusual. Usually the equity holder would lose their position as well in a situation like this. It's a very clever scheme. Perhaps too clever. I'm wondering if the bankrupty judge will buy off on this, or will see the scheme for what it is - Sciens retains control and equity and finds a convenient way to duck out of its bondholder obligations. They are playing a very nasty game of brinksmanship.

This also opens the door for another company to up the ante with a higher and better offer - assume the debt, drop in some cash, add some better value added (management, synergies with other divisions, etc...).

But, Sciens is still holding out the "nuclear option" as a threat. Move from Chapter 11 reorg if they don't get their way, and go to Chapter 7 to totally dissolve the company. Sciens has made allusions in this direction, likely to rattle the bondholders. The Pony could make through these proceedings, but I'm starting to get the feeling that Sciens are the kind of b@stards that would blow up the whole venture.

Part of me wishes I was not following this so closely - just that my own Colts seem somehow ... tarnished now.

wojownik, you sound like you work in finance. Nice commentary.

 

[RustyShackelford]

Any updates? .....

I read a business media blurb saying Colt is going down fast & may file Chapter 11 very soon.

 

[Constrictor]

I read a business media blurb saying Colt is going down fast & may file Chapter 11 very soon.

Yer a little late to the party. Colt filed bankruptcy a couple days ago.

 

[RustyShackelford]

WSJ, Hartford CT media ....

I checked around a few articles.
The Wall St Journel and some Hartford CT area media say Colt did the Ch 11.
A side-note is the media saying the avg Colt worker age is 51 with approx 19% of the factory staff over 65.
It's not a age slam or bad it's just a sign the company didn't really draw younger or new employees to learn the industrial arts or skills to keep the company busy for the next 10/20/30 years.

 

[huntsman]

It's not a age slam or bad it's just a sign the company didn't really draw younger or new employees to learn the industrial arts or skills to keep the company busy for the next 10/20/30 years.

Not surprising but then I worked union shops.

 

[Paul7]

Exactly! In recent decades the Colt name has faded, while Smith & Wesson and Ruger have advanced. Both have full product lines while for all practical purposes Colt is limited to just 3 platforms, all of which are highly contested by they're competitors.

If either chose to spend $350 million it would be to increase their own business.

I'll take a Colt 1911 over a cast Ruger any day.

 

[JSH1]

I checked around a few articles.
The Wall St Journel and some Hartford CT area media say Colt did the Ch 11.
A side-note is the media saying the avg Colt worker age is 51 with approx 19% of the factory staff over 65.
It's not a age slam or bad it's just a sign the company didn't really draw younger or new employees to learn the industrial arts or skills to keep the company busy for the next 10/20/30 years.

It could also be a sign that they are a good company to work for and have low employee turnover. Manufacturing has rapidly shed jobs over the past 30 years even as production as increased. More and more work is being automated. The foundry I worked in until recently employed 500 in the 70's. Today it is 125 even though the amount of product produced is many times greater than the 70's. It is a foundry and now the mold making is automated, the pour is automated. A human still cuts off the gates, but then the parts go to a CNC for machining. Today 5 people do what took 15-20 in the 70's.

 

[Aragon]

I checked around a few articles.
The Wall St Journel and some Hartford CT area media say Colt did the Ch 11.
A side-note is the media saying the avg Colt worker age is 51 with approx 19% of the factory staff over 65.
It's not a age slam or bad it's just a sign the company didn't really draw younger or new employees to learn the industrial arts or skills to keep the company busy for the next 10/20/30 years.

If you drilled-down a bit, I suspect you'd find that mean age of 51 is heavily skewed by the 19% of the labor force over 65. Sounds fairly normal/healthy to me.

 

[RustyShackelford]

Florida site ....

I see the points made but to me, the new Kissimmee FL site could have drawn new younger skilled labor that could have maintained higher QC levels & better QC for the mil/LE contracts.
Florida is a right to work state so labor groups-unions aren't as strong as CT.

I'd think older employees or staff would mean more medical care/health benefits use too. I've read you use 75% of your medical care costs in the last 2 years of your life.

 

[JSH1]

I see the points made but to me, the new Kissimmee FL site could have drawn new younger skilled labor that could have maintained higher QC levels & better QC for the mil/LE contracts.

I've worked in manufacturing facilities for 20 years. I've seen nothing that indicates younger workers have better quality than older workers.

Florida is a right to work state so labor groups-unions aren't as strong as CT.

I have worked in union shops and nonunion. No difference in the quality of product based on union status. Quality control is a function of the quality control system that the management puts in place.

I'd think older employees or staff would mean more medical care/health benefits use too. I've read you use 75% of your medical care costs in the last 2 years of your life.

Yes, heath costs generally increase with age. However, it is illegal to fire people because they age. Also, Colt retirees likely have company provided health insurance after they retire. Shutting down CT and moving production to FL would likely increase total health insurance costs because you create a new pool of retirees that get insurance but provide no value to the company AND a new pool of younger workers that also have insurance.

 

[Aragon]

I see the points made but to me, the new Kissimmee FL site could have drawn new younger skilled labor that could have maintained higher QC levels & better QC for the mil/LE contracts.
Florida is a right to work state so labor groups-unions aren't as strong as CT.

I'd think older employees or staff would mean more medical care/health benefits use too. I've read you use 75% of your medical care costs in the last 2 years of your life.

You are simply wrong.

There are people of all ages in CT just as there is in FL.

Younger (and less experienced) workers don't necessarily equate to "higher QC levels & better QC for the mil/LE contracts" -- NOT that it has been established that Colt has product quality problems.

 

[Old Fuff]

I'll take a Colt 1911 over a cast Ruger any day.

Bless you my child, because the company depends on you and others that have the same attitude.

The trouble is that you (and the others) are too few. Consequently Ruger sells many more 1911 platform pistols then Colt does, and thus are prosperous and in absolutely no danger of going bankrupt. In fact they are just the opposite in they have practically no debt on their books.

Colt may (or may not) make a better pistol, but clearly they aren't making enough of them to stay in business. If they are resurrected "as is," but debt free they will still have the problem of not producing enough to remain viable in a high competitive market.

 

[Aragon]

Bless you my child, because the company depends on you and others that have the same attitude.

The trouble is that you (and the others) are too few. Consequently Ruger sells many more 1911 platform pistols then Colt does, and thus are prosperous and in absolutely no danger of going bankrupt. In fact they are just the opposite in they have practically no debt on their books.

Colt may (or may not) make a better pistol, but clearly they aren't making enough of them to stay in business. If they are resurrected "as is," but debt free they will still have the problem of not producing enough to remain viable in a high competitive market.

If Colt's somehow became "debt free", it would instantly become a highly profitable business if managed correctly.

I see the overall firearms market continuing to shrink significantly following historic highs of 1-3 years ago. Who becomes our next president will have a great impact on future gun sales, but not to the extend it did a few years ago.

This shrinkage will effect all gun companies.

 

[DPris]

And again- Florida was never a move, it was a planned expansion.
Woulda had no effect on the workforce in West Hartford.
Denis

 

[SSN Vet]

Today 5 people do what took 15-20 in the 70's.

Yup... it's called productivity! Even without automation, one of the outcomes of a recession (and we just had a doosey of one) is that you trim your direct labor to match production to match the lower demand and tighten your overhead belt. Then when the business comes back, you postpone hiring as long as you can....

Guess what happens? You improve your processes and work practices to get more product out the door with the same reduced workforce.

I've been in manufacturing for 16 years at the same company and have been through three recessions with them (earning my keep through each one) and we literally produce twice as much product with the same size workforce as we did 10 years ago. We did automate one high volume assembly line, but we are too much of a job shop to automate most of what we do. New plant layout? Yup. Better training and cross training of employees? Yup. Replaced some key machines? Yup. Some of this increase is due to inflation and higher prices... but we run a much tighter ship than we did.

Now we're embracing Lean Manufacturing... and I fully expect that before I retire, we'll double productivity again.... and still employ around 160 warm bodies.

One of the biggest problems with union labor in the US is not wages and benies at all.... it's opposition to productivity improvements. Just last week the news ran articles about a potential strike at Bath Iron Works (one of two ship builders in the US for modern destroyers). The new CEO wants to modify hundreds of work rules. One example is to allow welders to set up and plug in their welding machines themselves. Currently, they can't do that because the contract rules require a separate "specialized plugger inner" employee. The union is fighting this tooth and nail... but imo, they will sink BIW if they oppose such productivity improvements, as Ingalls Shipyard has many hungry Louisianians, who will be more than happy to build those Zumwalt Class destroyers. Both yards are union... but the cost of living is lower in LA and the most productive yard will win the day. Productivity improvement is like a tsunami... you stand in it's way and you'll drowned. Political maneuvering will only take you so far, for so long.

Many people don't realize that by almost every measure, the manufacturing sector in the USA is THEE most productive in the world. The Chinese are NOT more productive than the US. They have much lower labor costs (and associated costs like workers comp insurance and unemployment insurance) and their manufacturing sector benefits enormously from a state regulated currency exchange which has kept the yaun artificially low for decades.

That is the untold story behind unemployment numbers in the US.

 

[Old Fuff]

If Colt's somehow became "debt free", it would instantly become a highly profitable business if managed correctly.

I don't really see that happening, but if did you would have a company that for all practical purposes only had two products - the 1911 pistol platform and AR15 rifle - that are viable.

And it was surrounded by competitors, big and small, who were not going to roll over and play dead. The market itself for 1911 pistols is shrinking as polymer frame/striker fired/ large-cap pistols become more popular and because of they're design and construction offer a much better profit margin.

While Colt might be (in theory) debt-free, they would need millions of dollars to design, develop, tool, produce and sell new lines, and I highly doubt that they're would be a land rush of of new investors willing to throw money at them unless their investment was solidly secured.

 

[PowerG]

I am a quality assurance manager for a very large international company, workmanship has more to do with the individual mindset and has little to do with age. Some trades do require a long period to master and the necessary experience may take several years to aquire.

I've looked at Colt's SEC filings for the last several years, without the debt Colt would be doing OK. Not burning the house down, but making a reasonable profit. If the company had been properly managed they would probably be expanding capacity and would have undoubtedly introduced new products. The debt payments are simply too large for their revenue.

I've bought a couple of new Colts in the last year and quality has been very good on both, and others I've seen have been the same. Their problem has been financial mismanagement, almost entirely. Harley Davidson also makes a supposedly technologically outdated line of products and are very successful, after nearly going under. The question is whether Colt can emulate HD's restructuring and resultant success. I think the amount of debt Colt has now built up may be too much to overcome no matter how well they reorganize.

 

[Old Fuff]

I've looked at Colt's SEC filings for the last several years

See if those don't reflect profits from sales of M-16/M4 rifles and carbines to the U.S. Military. Part of their current predicament comes from the loss of those contracts.

 

[wojownik]

I don't really see that happening.

Neither do I, looking at their posted financials. Struggling. Perhaps break-even. But not hugely profitable. And only if they somehow shed most long term debt, restructured/better terms on s/t debt, and somehow convinced themselves (Sciens) to stop taking out distributions and advisory "fees."

but if did you would have a company that for all practical purposes only had two products - the 1911 pistol platform and AR15 rifle - that are viable.

Hey, that's one product more than Wilson Combat Seriously, though, unless Colt were to scale down to focus on production and semi-custom 1911s, SAA and ARs, they need to find at least one "Next Big Thing." And they can't scale down. In fact, Colt/Sciens forecasts 25%-30% revenue growth for the next several years. Growth the structured lenders must be buying into to support the Sciens bankruptcy scheme.

I don't see 25-30% growth for Colt. Not alone by cutting MSRP, increasing production, reducing costs, streamlining product offerings, and expanding channels. Not unless they execute some some radical changes. The kind of changes that - IMHO - could more likely come from a new strategic owner.